A third of the world economy will be hit by recession this year, the head of the IMF said, as she warned that the world faces a “tougher” year in 2023 than the previous 12 months.
The US, EU and China are all slowing down at the same time, said Kristalina Georgieva, managing director of the IMF.
“We expect that a third of the world economy will be in recession,” Georgieva told US television network CBS in an interview broadcast on Sunday, adding that “half of the European Union will be in a recession”[ads1]; this year.
The IMF cut its 2023 outlook for global economic growth in October, citing continued resistance from the war in Ukraine as well as inflationary pressures and interest rate hikes by major central banks.
The rapid spread of Covid in China now that President Xi Jinping has dropped the country’s strict containment policies means the country faces another economic blow in the short term, Georgieva said.
“For the next couple of months, it will be tough for China, and the impact on Chinese growth will be negative, the impact on the region will be negative, the impact on global growth will be negative,” she said.
For the first time in 40 years, China’s annual growth is likely to be at or below global growth, Georgieva said, meaning it could drag down global economic activity rather than drive it forward. – It has never happened before.
Her comments suggest the IMF will soon cut its economic forecasts for 2023 again; it usually publishes updated estimates during the World Economic Forum in Davos, Switzerland, which takes place later this month.
However, the U.S. is likely to escape the worst of the downturn, thanks in part to a strong labor market, Georgieva said.
The U.S. “can avoid a recession” because unemployment is so low, she said. “If that resilience . . . holder [in 2023], the United States would help the world get through a very difficult year,” she said. “The US economy is remarkably resilient.”
The U.S. unemployment rate is at 3.7 percent, and the country added a better-than-expected 263,000 jobs to nonfarm payrolls in November. Economists at Morgan Stanley expect the unemployment rate to be unchanged in December and the US to add 185,000 jobs.
Late last month, the USA’s gross domestic product for the third quarter was revised upwards to 3.2 per cent, from 2.9 per cent in November.
However, economists polled by the Financial Times expect US unemployment to jump to 5.5 percent this year, and 85 percent of economists polled expect a recession in 2023.
Forecasters at Capital Economics have said there is a 90 percent chance the US will be in recession within the next six months.
“While the US recession is likely to be mild, the eurozone will suffer a larger downturn due to the huge trade-off blow caused by the Ukraine war,” Capital Economics said in December.
Also on CBS, Bank of America chief economist Michael Gapen said the risk of a US recession in the US was “high”, but any recession “may not be deep and prolonged”.
“It’s not certain,” he said, adding that 2023 could still be a difficult economic year as the Federal Reserve continues to fight inflation.
Additional reporting from Reuters